Fitch expects Genting to reap higher earnings from leisure, plantations biz

KUALA LUMPUR: Fitch Ratings expects higher earnings at Genting's Malaysian leisure and hospitality (L&H) and oil-palm plantation businesses, which together contributed around 40% of its consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) in 1H17.

In its rating announcement on Tuesday, Fitch pointed out Resorts World Genting (RWG) has opened several new facilities as part of its 10-year RM10bil redevelopment masterplan launched in 2013.

Other key attractions, including a new theme park and the remaining floors at its new mall and casino, are scheduled to open progressively from 2017. 

“We expect these developments to result in a sustained increase in visitor arrivals over the next three years, from 20 million in 2016, and drive revenue growth for Genting's L&H business. 

“The plantation business should benefit from a rebound in yields on fresh-fruit bunches in 2017 due to better weather conditions. 

“We expect earnings to be supported over the longer term by a sustained yield improvement, as Genting's Indonesian oil-palm acreage matures, and healthy palm-oil prices,” it said.

Fitch also expects Genting's consolidated capital expenditure (capex) to increase over the next three years to an average of around RM7bil per year, against the RM4bil spent in 2016. 

Genting is investing in its Resorts World Las Vegas project and expects full-scale construction to commence by end-2017, with opening targeted for 2020. 

“This is in addition to its continued investment in RWG, of which around RM4bil has been spent up to 2016. Our capex estimates do not factor in potential investment by Genting Singapore PLC (GENS) in Japan due to significant uncertainties,” it said.

It pointed out Genting was in a net cash position as of end-2016, “which we expect to turn into a net debt position in the next three years due to higher capex”. 

However, leverage should remain low, with net adjusted debt/operating EBITDAR less net income attributable to minorities at below 0.5 times for 2019. 

The group's management has a record of prudent capital management, evidenced by GENS' sale of its stake in a South Korean venture in late 2016 to bolster cash reserves. 

“Our estimates factor in likely equity inflows from the exercise of Genting's warrants, which expire in December 2018,” it said.